Securities fraud case goes on in Larimer County court

FORT COLLINS – Northern Colorado businessman Steve Sumner made his first appearance in Larimer County District Court on Feb. 22 to face charges including six counts of securities fraud and five counts of theft.

The charges are in connection with separate alleged securities solicitations dating back as far as four years ago.

The complex case is being prosecuted by the Colorado Attorney General’s office and involves such a volume of documentation that Judge Daniel Kaup set the next hearing two months out to give the public defender assigned to Sumner time for discovery.

Sumner’s charges stem from his dealings through his Fort Collins-based business, The Loan Consultants, which, according to the state grand jury indictment, was originally a loan brokerage seeking to match lenders to borrowers.

The indictment alleges that Sumner sought funds from a handful of investors, sometimes getting as many as three separate rounds of investment. In return, the investors received a promissory note due a relatively short time later that would repay their investment plus interest.

The indictment does not mention whether Sumner made payment on any of the promissory notes. Altogether, the indictment details around $67,500 in promissory notes made to seven investors – four of whom were couples.

For his part, Sumner admits to making mistakes, but denies any intentional wrongdoing or criminal activity.

“They say that the truth always lies somewhere in the middle,” he wrote in an e-mail to the Business Report. “I borrowed money from people and failed to pay some of it back on time.”

Sumner describes the transactions as a “series of personal promissory notes.” However, the indictment labels the exchange as securities “evidenced in part by the promissory notes.”

Securities law requires myriad disclosures be made to investors. The charges allege that Sumner did not disclose several items about his past that might have had an effect on investors’ decisions. According to the indictment, Sumner was convicted of felony theft in 2001 related to a 1995 case. He was ordered to pay more than $75,000 in restitution. Sumner also owes about $225,000 in prior and pending civil lawsuits.

The indictment goes on to allege that Sumner did not disclose to investors that he was fined and permanently barred by the National Association of Securities Dealers in 1998 for “failing to disclose material information relating to the transactions and when he knew or should have known that he would be unable to repay the loan promised.”

“I feel really bad about the whole situation and the people that were drug into this,” Sumner said.

Borrower’s perspective

John Schreck, an alleged fraud victim, sat in court on the morning of Feb. 22 for Sumner’s first appearance. Schreck is listed in court documents as a possible witness, but his allegations are not part of the case against Sumner.

Schreck owns Colorado Table Cloth, a firm in Longmont that supplies caterers and event centers. He claims to be on the other side of Sumner’s dealings, as a borrower rather than a lender.

He first began dealing with Sumner in 1999 when Sumner assisted Schreck in securing a small business loan of about $15,000. Schreck said that Sumner secured the loan with no problems.

In 2000, Schreck purchased some property. Sumner told Schreck that through The Loan Consultants he would be able to secure a construction loan for Schreck to build a home on the land. According to Schreck, Sumner collected a $1,000 retainer fee to start working on the loan, which was to have been for around $139,000.

After eight months with no performance on the loan, Schreck became worried about Sumner’s intentions. He filed a report with the Fort Collins police in July 2001, but later dropped the charges when Sumner confronted him. Schreck said that Sumner convinced him that there would be no way for him to secure the loan if the case went to court.

Over the course of the next year, according to Schreck, Sumner continued to assure him that the loan was progressing. Schreck said Sumner pulled through with a separate business loan of $26,000 for him in January 2002, at which point Schreck paid him his commission of $1,300 and gave him an advance of almost $3,000. In a statement to police, Schreck said that Sumner would later claim that the advance was actually payment for his consulting fees.

It wasn’t until May 2002 that construction on Schreck’s home began. However, rather than having found a lender for the loan, Schreck said, Sumner found a builder willing to cover the majority of the construction expenses with the guarantee of later funding and payment. Schreck also obtained a small construction loan from a Fort Collins-based mortgage lender.

Schreck said that he lost contact with Sumner until just before the home was completed in September 2002. However, there was still no loan to cover the expenses. In the following months, Schreck said Sumner continued to promise that the loan was not far off and that he needed his fees advanced so that he could continue to focus all of his efforts on it.

By August 2003, there was still no loan and the mortgage lender foreclosed on the property. Altogether, Schreck told police, he lost $155,000 in equity in the foreclosed property and $35,000 in funds advanced to Sumner, interest costs and money paid to people involved with the construction of the home.

Schreck filed another statement with Fort Collins police detailing his loss in March 2005. Schreck said that the police told him the information he passed along to them about his situation, as well as information he gathered about other alleged victims, played a major role in their investigation.

Police spokeswoman Rita Davis referred all questions regarding the Sumner case to the Colorado Attorney General’s office.

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